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Peak Oil: Current Situation & 2005 Projections

This past year we have seen how volatile the oil market has become as the world approaches peak oil production. But the recent softening of oil prices demonstrates that we have not yet peaked. What we are experiencing right now is a tight oil market. Production can still increase, but not by much and only with difficulty. The good news is that we are producing more oil than ever before. The bad news is that production is barely keeping up with consumption, and the decline is still ahead of us.

In this tight situation, anything which disrupts oil production around the globe has an effect on prices. This year oil prices were driven up by the triple whammy of the Iraq invasion, civil unrest leading to production disruption in Nigeria, and hurricanes in the Gulf. Production could not increase enough to cover all of those shortages. But now the hurricane season is long over, and Nigeria is back in business. Barring further disruptions - such as the horror of a 9.0 earthquake in the Indian Ocean - prices should remain soft for the short term.

2005 Energy Picture

In fact, oil prices might drop back below $20/barrel before 2005 is over - depending on circumstances. Several new large fields should come online this year, adding extra capacity. These are the last of the 500 million barrel mega fields, since none has been discovered in the past few years. Eighteen new mega projects are due to start producing this year, followed by eleven more is 2006. However, 2007 will see the opening of only three new projects, followed by three more in 2008. This will not keep up with declining production in older fields, much less the increase in demand.

ODAC has announced that world production is now seeing a 1 million barrel/day depletion rate. It remains to be seen whether the new production slated to come online this year and next will be sufficient to make up for that depletion rate. And should Ghawar collapse within the next year or two, the loss of production from this one field might cancel out all gains from new fields.

Increasing demand in China and India might also keep prices strong. Both countries are building strategic petroleum reserves. The additional demand of filling these reserves could account for all new production this year, driving prices higher. However, if prices climb high enough, these countries will likely suspend purchases for their strategic reserves, and might even open their reserves to help bring the price back down.

So for the next two years prices will tend to be soft, though they will remain volatile due to production disruptions caused by natural catastrophe, warfare and a host of other causes. In other words, we may have a cushion for the next couple years. But how are we going to use it? If we provoke supply disruptions, the price will bounce up. Once the disruption is over, prices will drop.

Likewise, our natural gas storage is full going into winter 2005. We will have no gas shortages this year, barring a major natural catastrophe. Though how long we can expect the weather to cooperate is a good question (which perhaps should be asked of those who are laying the ceiling of vapor trails in our skies). However, production is still precarious, and it is doubtful that any new production from territories recently opened to drilling will have much effect beyond broadening out the North American natural gas cliff.

So it appears that we may have reached an energy breather. Soft prices will be welcomed most graciously by those in denial of peak oil. Yet this will also give those of us who are aware a chance to prepare - perhaps our last chance before the roller coaster dives down the declining slope of production, carrying all in it.

The US & Iran

The Bush administration may take advantage of the soft energy market to continue their oil imperialism in the Middle East and elsewhere. It appears that the neocons have their sights on Iran. Bush has made some threats against Iran recently, using the excuses of Iranian nuclear potential and alleged Iranian interference in Iraq. Over the past year, Iran has been taking aim directly at corporate interests and US dollar hegemony. Iran has been working to set up its own oil market - sort of a world trade center of oil - and to price this market in euros. Iran is doing this intentionally to break the power of the oil majors over the oil market. This cannot be tolerated by the US neocons. So look for them to try to bust the Iranian oil bourse and depose the government through some covert means. But should the covert means fail, or should they feel time is short, then we can expect Bush to bring his already beleaguered war machine to Iran.

Following the 2004 US election, many foreign interests are considering taking matters into their own hands. The problem for them is that any action they take against the US will also hurt them to some extent. And nobody wants to piss off the US too openly; after all, we are the only country to use nuclear weapons in combat. But Iran has been pushed around by the US for years, and might feel that it has little to lose and everything to gain. An invasion of Iran would make Iraq look like a cake walk. And there is always the possibility that it could set off the entire powder keg known as the Middle East.

The US/British imperialist gambit is growing more dangerous by the day. And the Bush administration has gone too far to stop now. They will push the conquest of the Middle East and other oil bearing or geo-strategic areas. To fail now is to cease to be a superpower.

Big Brother at Home

Meanwhile, the neocon TKO of the 2004 election will make it much easier for Bush to broaden the powers first granted under the Patriot Act and similar post 9-11 legislation. The neocons already have the capability to suspend the constitution in case of an emergency. They will seek to strengthen this capability over the next few years. And they will also prepare to handle the disenchanted masses back home once oil prices begin their irreversible climb.

It is a certainty, with our economy ready to burst at any moment due to various bubbles and dollar devaluation, and with the irreversible decline of oil production standing no more than a couple of years distant, that we will have a crisis before Bush is due to leave office. That would give him the excuse to do away with the sham elections and assume the mantle of Emperor. Impossible, some say; people will "take to the streets." Then why haven't they done so already? There has already been more than enough provocation to do so. The rest of the world has been scratching their heads for the last four years, wondering why people in the US have not risen up yet.

Long Range Projection

Oil production will begin its decline in 2007 or 2008. At that point repression, both at home and abroad, will begin in earnest. The economy will soon collapse completely (if it does not do so before 2007). People will feel the crunch, and they will become desperate. If you are not prepared in a supportive community intent on transitioning to self-sufficiency, then your chances of surviving are drastically reduced.

Beyond economic collapse followed by civil unrest, it is hard to say what will happen as energy production declines. But the world population will have to contract by 2/3s, and the US population will have to contract by 1/3. The loss will not happen all at once. It will start out very gradually, but it will develop into an exponential curve, similar to the curve of population growth following the introduction of hydrocarbon energy. Once the loss of energy production passes some critical point, the population will inevitably crash.

It is nearly impossible to say how the elite will play this out. It is to be hoped that we won't be left in a totalitarian world where none of us is even allowed the freedom to seek our own sustainable balance. It is also to be hoped that human society does not break down entirely, leaving some small communities attempting to survive while surrounded by predators.

Find some place or some way to grow as much of your own food as you can, where your neighbors are supportive. Plan to do without gas or electricity. Rediscover the old ways. Dust off those back copies of Mother Earth News stacked in the attic. It is time to prepare.

Happy New Year!

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